Forward guidance was introduced by the Fed in 2000. Yellen’s Fed has since used it as a license to give credence to all potentially possible global risks and in effect, “dove down” Fed inaction that could potentially be perceived as even the slightest bit hawkish.
Today’s Fed presser was about as boring as it gets! Not because the committee delivered exactly the 25bps hike the market 100% expected, but because forward guidance simply didn’t exist. No mention of China, no mention of dollar strength – except a strangely lukewarm embrace from “some members” who acknowledged that economic expansion would lead to it, no mention of oil, no mention of Italian banks, French elections, fake news … It felt like she just gave up. She had to acknowledge we’re at full employment, walk back an interest in running the economy “hot”, and even take back her prior plea for fiscal stimulus. All said, this meeting was very hawkish. Much more hawkish than expected and even still, more hawkish than most acknowledge, postgame.
I’ve been begging for a hike if for no other reason than to signal confidence in the economy. Today, that’s what happened. Instead, though Yellen used it as a dovish temper, to allay concerns that the Fed might acknowledge how far behind the ball it really is.
I bought spooz on the open, bought spooz again on the post 2pm algo dip and still again, bought spooz the moment she left the stage. This macroscape is about as simple as it gets. Dollar strength and US equity strength. That’s all folks! The conventional dollar/equity inverse correlation has been so distorted by the recent dumpfest in bonds that right now, momentum is a superior gauge.
The market was pricing the hike at 70% going into the second week of October and at 100% at Dow 19966! They “dumped” to Monday’s close by the start of the presser, but VWAP for the day was down a measly 30bps, post release. That means, largely, dips were bought. Not exactly, panic, the bull market is over.